Best Exit Strategy With Forex

Best Exit Strategy Forex

Best Exit Strategy In Forex Trading

A trade consists of preparation (and before that knowledge gleaned form study and practice) then entry, then trade management then exit. The time from entry to exit can vary from very short term trades, perhaps executed by a computer program (robot) to very long term trades. Human day traders will by definition tend to trade on shorter term trades up to a matter of hours and down to 1 minute or less.

For every trade the question of when to exit is pertinent. The reason for this is that even if one is rigidly following a set of rules (or algorithm) then it is not necessarily known beforehand when to exit. A set of rules may have an exit condition based on indicator signals, but when this signal happens is up to the market (unless it is time based).

In general a human trader will tend to trade with rules, but will also take note of what the market is actually doing. This kind of approach allows short term trades to turn into longer term day trades. As a bid/ask spread and/or a commission charge is deducted each time a trade is made, then the trader may wish to consider longer term trades. Longer term also means that it is possible for more distance to be travelled by a Forex pair, thus increasing the pip value of the trade. However conversely, it allows for deeper moves against the traded position, which is one reason why traders may wish to consider shorter term trades as a kind of base point (which may be extended based on market conditions).

When to exit then becomes a matter of risk management. The trader can consider exiting when a move against the traded position has become deep enough to seem less likely that it can recover. Deeper retracements can recover but the deeper a move, the harder is can become to recover even back to the entry point. So shorter term trades can become longer more tortuous trades as the trader hopes recovery can happen (and it may not). Thus a good exit strategy can protect from this outcome to some extent. The trader can take note of market structure and see what relatively speaking is a deep retracement and can use multiple time frame analysis to see how deep it can go.

Exiting a news trade takes place in the context of volatile market moves

For a successful trade other matters come into play. Exit now becomes a matter of locking in pips gained. The trader may wish to add on to a successful position and continue with it, but noting that if it reverses it can take out any gains at a more accelerated rate. The trader can look for exit points again based on multiple time frame analysis and past market structure. What kind of range of movement seems in keeping with or against the grain of the past. The further a move goes in one direction, then is it likely that a retracement will happen. This may or may not be the case, but the trader has to make decisions based on what they think might happen, founded on information which may or may not be helpful (which is one reason why trading is risky).